Bank of America

Back in 2010 Bank of America was hard to work with, disorganized, and tricky.

They were putting borrowers into trial modifications without confirming their income, just so Bank of America could get them to make payments. Later Bank of Americal would disapprove applicants for low income.

My advice at the time was: If you have a Bank of America loan, hire a lawyer.

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RS owned two fast food restaurants. Both of them had trouble in 2008 – 2010. RS managed to hold on by borrowing from parents and by getting behind on his mortgage.

Self-employed borrowers are more challenging to work with, but there are more opportunities to help them.

In the case of RS, we called B of A twice a week. With B of A you have to call them. They will almost never call you.

As it worked out, RS’s income was fell right into the 31% groove. We got him approved for a 2.125% rate for five years, increasing to 3.125 in the sixth year, 4.125 in the seventh year, and 4.75% for the balance of the loan. This is a 307 month amortization, meaning that the original 360 month amortization stays in place.

The modification proposal was submitted in February of 2011. The client was put into a trial modification in October. The modification was finalized in February of 2011. In the future we believe that we can move modifications through B of A faster by pestering them twice each week.

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JS was stuck in a 2/1 ARM Bank of America loan with a minimum interest rate of 8.6%. He was paying over $2,200 per month on a $265,000 loan. He was unemployed for several months and then underemployed for several more. He missed ten mortgage payments.

His wife was not on the loan, but I convinced B of A to factor in her income.

Within 60 days after submitting our proposal, B of A came back with a non-HAMP modification proposal.

Unpaid payments would be added to the balance. The rate would be 3.5% interest-only for the first three years. Then the remaining balance would be amortized over 360 months at a 5.0% fixed rate.

This is not quite as good as a true HAMP modification with a 2.0% amortizing rate, but the 3.5% interest-only payments are actually lower than 2.0% amortizing payments would be.

The odd thing about the loan is that we were using the wife’s income despite the fact that she was not on the loan. Also, JS’s income is still variable from month to month.

In a case like this it is better to take a very good offer instead of holding out for a slightly better offer that might not materialize.

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On the other hand we have the saga of MS. MS was one of my first modification clients. We started working on her case in 2009, and the case took until May of 2011 to complete.

You can review MS’s Bank of America modification here. Note that it is an in-house modification, not a Making Home Affordable modification. MS’s income was fairly low when we started, but Bank of America stalled and stalled and stalled, and MS’s income rose to the point where she could not qualify for a Making Home Affordable modification. On the other hand, she is getting interest-only payments for the first five years.

One problem with this case was that her’s was a Countrywide loan. B of A bought Countrywide when it failed. B of A continued to operate it as a separate unit, and it was a truly disorganized unit. These days Bank of America is outsourcing huge portfolios of modifications to other servicers.

Part of the problem with all old B of A modifications is that B of A originally qualified borrowers orally for its trial payment program. B of A would put anyone into a trial payment plan if they claimed to make income around 3.22 times their mortgage payment. The 3.22 figure represents the inverse of 31%.

MS qualified and started making trial payments, but B of A never sent her anything in writing. She kept making trial payments. Every few months we would have to update the file with new bank statements and pay stubs. But no modification resulted. The answer was always: It’s still in processing.

Over time MS’s income started to recover and increase. That meant that the numbers no longer favored a good modification. I think this is part of B of A’s strategy: Stall until income rises and the borrower is no longer qualified.

The moral of the story is that once a borrower gets into a trial payment program, he should push for finalization.

Under the new rules one has to prove income in writing, not orally over the phone. Once a borrower is put into a trial payment program, and as long as the borrower makes the trial payments, the lender no longer can ask for more proof of income. Thus, if income rises, the borrower does not lose his qualification. Page 77 of the MHA Handbook says:

The trial period is three months in duration (or longer if necessary to comply with applicable contractual obligations) and governed by terms set forth in the TPP Notice. Borrowers who make all trial period payments timely and who satisfy all other trial period requirements will be offered a permanent modification.

It is not absolutely clear here that no further proof regarding income can be required after one enters a trial payment program, but that is the apparent meaning. Also, in my experience, it is the custom. I have never had a lender require more income proof once a borrower entered a trial payment program.

Unfortunately, B of A has thousands of borrowers who were put into trial payment programs without their proving their income. So when it comes time to finalize their modifications, they have to prove their income. If their income has risen or fallen, they may be out of luck.

HMH came to me following a financial hardship. He faced high payments on his Bank of America serviced loan, with a rate of 5.625. The investor is Fannie Mae.

HMH is self-employed as a taxi driver. He also owns a rental house in Brooklyn, which breaks even or makes a small profit. He also owns a taxi in Brooklyn, and it has a mortgage against it. The rent on the taxi is roughly the amount of the mortgage payments.

These self-employed situations are always a challenge.

The result was satisfactory. HMH got a 2.0% rate with a 40-year amortization. There was no principal reduction first because Fannie Mae does not give principal reductions (although it sometimes gives principal forbearance) and second because his house is worth approximately what he owes on it.

Bank of America processors toll me that they were getting 120,000 “requests” per day. To get down to issuing a modification, they were taking the longest of any lender or servicer that we worked with. I typically had several clients who were in trial modifications for far more than the three months called for in the trial payment plan. Bank of America just kept saying: Keep paying and we will get around to you.

Further, Bank of America was actively discouraging clients from utilizing the services of an attorney or other third-party modification company. I believe this is bad faith action that could subject Bank of America to suit.

According to the Washington Post, J.P. Morgan Chase in 2009 had modified 20 percent of its borrowers, Morgan Stanley’s Saxon Mortgage Services has modified 25 percent, Citigroup has modified 15 percent, Wells Fargo has modified 6 percent and Bank of America, probably the worst of all economic offenders (next to the unrepentantly greedy Goldman Sachs, that is) had modified a paltry 4 percent.

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5 Comments

RW3 / December 7, 2009

Hi,

This is an excellent post. Bank of America services my loan, and Fannie Mae is the investor. (The loan originated with Countrywide.) I am in my 4th month of a 6 month forbearance program. What can I expect to be offered when this program ends in February of 2010? I’ve made all payment on time thus far over the phone, and have sent numerous complaints to my senator, the Office of the Comptroller of the Currency, and the BBB. My loan is now being handled in the office of the president.

I have to ask why you are in a forbearance agreement and not a trial plan for modification. What is your gross income? What is 31% of your gross income? That is what you should expect your payment to be, counting principal, interest, taxes, insurance, and HOA. If your income is too high, then 31% of it may be a high payment. You may have too much income. I need more data in order to answer this question properly. I would need to know your loan amount and your gross income.

despite the fact that we fall into the 31% catagory-my salary was cut 50% and my husband can only work part time due to Chrohn’s disease–and over 3 months of paperwork-much of it duplications -we were refused HAMP and they are suggesting a forbearance plan-isn’t this another way for them to make more money off of us by charging us late fees too ??? is there anything I can do?

@Rosie
I don’t know enough about your situation to answer your question. If your property is worth more than what you owe on the first, then they are not obligated to give you a modification. If your income is too low or too high, they can turn you down. If they can foreclose and get all their money, you can only beg for and may not get a modification. Forbearance is a way of catching up but there is no change in the interest rate or amortization.

I have a Citimortgage 1st ($60,000) and a BofA 2nd TD ($239,000) (formerly Countrywide). My house is now worth $175,000. My income is 50% of when I qualified, my husband had a stroke and can no longer work. We have an attorney working on the perm disability but no income for my husband right now. My income alone will not cover the housing and living expenses, I am looking into a BK to eliminate my CC debt. CitiMortgage will not work with me, they stated they will be happy to take my house back and BofA just offered me a forebearance plan for no payments during the plan. They said we will renegotiate upon maturity of the forebearance. What happens at the end of the plan???